The Turkish steel market took a sudden dive this week, lowering rebar offers to the US that had been exceptionally high to begin with.
Although raw material costs in the Turkish steel market rose along with US prices in the last month, the corresponding price increases on Turkish steel products were also attributed to a sharp increase in demand; namely, from a strengthening Middle Eastern construction market. Abu Dhabi was proclaimed to be the next Dubai, and Turkish steel producers eagerly prepared for the apparent boom after hearing reports of multi-billion-dollar investments in Abu Dhabian infrastructure. However, the Turkish mills counted their chickens before they hatched, and the alleged demand-based price hikes proved to be unsustainable. Abu Dhabi will indeed invest significant funds in construction projects, but most projects have not started quite yet.
Consequently, Turkish prices for rebar fell by $1.50 cwt. ($33/mt or $30/nt) this week, putting offers into the range of $31.50 cwt. to $32.50 cwt. ($694/mt to $717/mt or $630/nt to $650/nt) duty-paid loaded truck in US Gulf ports, which is still a bit higher than domestic offerings. It should be noted that the Turkish mills are very willing to negotiate, and customers seeking large tonnages will likely be able to cut an attractive deal.
Looking south of the border, Mexican rebar offers also decreased this week, but not as significantly. Prices dipped by about $0.50 cwt. ($11/mt or $10/nt), bringing offers into the range of $30.50 cwt. to $31.50 cwt. ($672/mt to $694/mt or $610/nt to $630/nt) delivered to US border states.
On the domestic side, rebar prices haven't changed from last week, with offers still being seen in the range of $30.75 cwt. to $31.25 cwt. ($678/mt to $689/mt or $615/nt to $625/nt) ex-mill. Everyone is still looking to scrap to see where the rebar market goes next, but the outlook has changed a bit from last week. Previously, mills were expected to raise base prices if scrap goes down in May, resulting in another month of neutral transaction pricing. Now that Turkish scrap and rebar prices have taken a dive, there is a possibility that import offers will become more attractive in the near future. If this is the case, and import prices dip below domestic prices, domestic mills might feel pressure to lower transaction prices in order to compete.
However, even if overall prices do decline a bit in May, they are expected to come back by mid-summer and stay up based more on demand than simply raw material costs. Already, rebar demand is improving despite the sluggishness of the construction industry. Several small projects across the spectrum of end-users are driving steady sales, including farming structures, swimming pools and custom builders. In many ways, this indicates a more sustainable recovery than if all the improvement depended on one major sector alone. Even so, construction activity is not entirely tepid. Hospital construction is gaining traction across the US; from the East Coast, where there is a high concentration of universities and university-related medical facilities, to the West Coast, where hospital boards are opting to build new facilities rather than retrofitting old ones for earthquakes. Furthermore, the recently passed US healthcare bill, which mandates insurance coverage for all citizens, will likely result in hospital construction becoming a major driving force in the industry as a whole for several years to come.